Gold News

Gold Prices Diverge as ETFs Shrink, Slower US Inflation 'Says No Hard Landing'

GOLD and SILVER extended their sudden price jumps in Dollar terms on Thursday as the US currency sank further following yet more soft US inflation data, but the largest gold- and silver-backed ETF trust funds shrank overnight, marking net investment outflows.
After US consumer-price inflation for June yesterday came in at the slowest pace in more than 2 years, producer prices today showed an annual rise of just 0.1%, with 'core' inflation at the factory gate – excluding fuel and food – slowing to 2.4%, the weakest pace since New Year 2021.
That boosted bets that the Federal Reserve will cease raising interest rates before other major central banks do, helping send the Dollar down to new 15-month lows on the FX market and widened the divergence between gold prices for non-US investors while curbing silver's 8.3% weekly jump in Sterling and Euro terms.
Chart of gold priced in US Dollars, Sterling and Euros, rebased to 100 = New Year 2023. Source: BullionVault
While the UK gold price in Pounds per ounce has now lost 2.5% so far in 2023, fixing around £1494 at Thursday's London benchmark auction, the Euro price is flat at €1750 but the Dollar price of gold has risen 6.2% to $1960.
Silver prices have meantime recovered and edged above the New Year's level for US investors at $24.50, but remain 8.1% lower in Sterling at £18.71 and 5.5% lower in Euros at €21.80 per Troy ounce.
Despite Wednesday's sharp jump in gold and silver prices, the largest bullion-backed exchange-traded trust funds all shrank, with the giant gold GLD reaching its smallest since mid-March while No.2 gold ETF the IAU shrank to its start-April level and the huge SLV silver investment trust shed 0.4% of its size to the smallest since end-March.
With both US consumer-price inflation and unemployment reading close to 3% on the latest figures, "The data is clearly at odds with Team Hard Landing so far," says UMass Amherst professor Arin Dube, referring to analysts and economists fearing a steep recession or worsening cost of living. 
"Reality seems bound by Team Transitory and Team Soft Landing."
New claims for US benefits slipped back last week from end-June's sudden rise, separate data said Thursday.
But new data outside the USA was gloomy however, with No.2 world economy China reporting a 12.4% year-on-year plunge in exports and an 8.3% drop in imports for June.
World No.3 economic bloc the Eurozone said its industrial production fell 2.2% per year in May, worse than analysts forecast, while No.6 national economy the UK confirmed that its GDP growth has stalled so far in 2023 as tighter monetary policy from the Bank of England – now chasing near-9% inflation with 5% interest rates – starts to hit the housing market.
"The [US] economic situation," says Adam Tooze, professor of modern history at Columbia, "is far better than we had any reason to expect both in light of the severity of the 2020 shock and America’s previous track record, for instance after 2008.
"Yet approval for Biden’s handling of the economy currently stands at 34%, which is even lower than his overall approval rating of 41%...
"Why are Americans convinced they are in the middle of a hard landing, when they are in fact experiencing the opposite?"
Global stock markets again led US equities higher after Thursday's US data, with the EuroStoxx 50 index now gaining 27.0% from this time last year while the Dollar-denominated Nasdaq tech-stock index has gained 24.9%.
With the Dollar's drop curbing gold and silver price gains for UK and Euro investors, non-US government bond prices tracked the stock market and responded more strongly to the US inflation slowdown than US bonds did, rising to squash 10-year UK Gilt yields 0.35 percentage points from last Friday's fresh decade-and-a-half high of 4.70% while comparable US yields dropped 0.26 points for the week so far to 3.85% per annum.

Adrian Ash

Adrian Ash, BullionVault Gold News

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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